@Kevin MyhreI've been getting a lot of push back from banks and servicers these days.The investors are preventing banks from going below certain numbers.

I had a roofer tarp the roof to prevent further damage.

You could possibly double close on it, but most short sales have deed restrictions these days preventing the resale of the property for at least 30 days and sometimes as much as 120 days. 

The P's apply here -- prior proper planning prevents...

Also the statute of limitations will not affect how long the mortgage may be listed on her credit report – generally for seven years.Until you are certain that you will not be foreclosed, pay only the minimum property taxes necessary to prevent property tax foreclosure.

Mike Flavin in my opinion the core issue is not "how much of the deposit is withheld at move out to cover damages," but rather, "how much damage is prevented by collecting the a deposit at move in."

So my question is to you is this something that could work or is there internal policies that they have to follow that would prevent them from doing this?  

I am not of the people, only looking for guidance.It is not super complicated but it is risky and I am not sure how to go about it 100% and what the best ways are to prevent any problems.A person wants to sell his house and a potential buyer offered to the current homeowner that they would pay him a lump sum of cash upfront, and then pay off the rest with a set monthly payment within a 5 year period.

Is there anything about the past bankruptcy that complicates or prevents the sale from moving forward if we agree to an amount that covers the bank's foreclosure judgment. 

You have the experience to know all the good and all the bad things that can come up during a re-hab project so hopefully you know what to anticipate and thereby prevent it.